Essential Things One Must Know to Qualify for a Personal Loan

Many consider Personal Loans when they need a quick-fix solution to fulfill a financial emergency. When the savings are insufficient to meet an immediate requirement, a Personal Loan comes as a savior with the most accessible funding option.

An instant Personal Loan is a great option whether it is for a wedding, home renovation, education, vacation, or medical emergency. It comes with attractive interest rates, and flexible repayment terms provide funds without collateral.

Things to Qualify for a Personal Loan

Here are some essential considerations one must bear in mind to qualify for a Personal Loan online.

• The Purpose of Borrowing a Loan

The first thing you should do is determine where and how you will spend the money. For instance, do you wish to borrow the loan for a wedding, children’s education, travel or emergency. Take a minute to decide how much additional funding you need. If the purpose of borrowing a loan is clear, you can save yourself from borrowing more than required and spending it on unnecessary things.

• Personal Loan Eligibility

You have made up your mind to borrow a Personal Loan and decided how to use it the right way; the next step is to know your eligibility. Before applying for a Personal Loan, use a Personal Loan eligibility calculator to know the loan size you may get. Lending institutions determine eligibility based on several factors, including the applicant’s income, repayment history, employment stability, credit score, and current financial liabilities.

If you have a credit score of 750 or above, you pay all your credit card bills and loan EMIs on time, and your monthly income is good enough to afford the EMIs, you will be a highly eligible borrower.. Those with poor credit scores and low loan eligibility must wait some time to improve their credit score and financial profile. Applying for a Personal Loan with low eligibility will result in loan rejection. It ultimately gets recorded in the credit report and negatively impacts future loan applications.

• Affordable EMI Amount

Before applying for the Personal Loan online, it is essential to determine how much you can keep aside from your salary to repay as EMIs. Here are a few steps to check EMI affordability:

1. Analyze the monthly cash flow. Lower your debt-to-income ratio, the better are your chances for loan eligibility.
2. Figure out the amount one can dedicate to cover EMI payments
3. Ensure there is enough money left after paying the EMIs, credit card bills and other financial obligations
4. Create a budget and explore areas where it is possible to cut costs and save money. The borrower can add that amount to the EMI payment and opt for a shorter loan tenure. It makes the borrower debt-free sooner and saves money on the total interest outgo.

• Loan Amount to Borrow

Since a Personal Loan is an unsecured loan that does not require any collateral, security, or guarantor, the NBFC will determine the loan amount depending on multiple factors. These include the applicant’s salary, credit score, and existing liabilities. The aspiring borrower must have a clear purpose, evaluate the expenses to cover the loan and decide on an adequate loan amount. Over-borrowing will increase the loan burden, and the overall loan cost unnecessarily. A personal Loan eligibility calculator helps determine the loan amount according to the crucial factors and helps plan the loan application.

• Documentation Requirements

When a loan seeker applies for a Personal Loan, the lending institution asks for a few necessary documents to verify the details provided. The standard documents include the following:

1. PAN Card
2. Identity proof, including Aadhaar Card, Voter ID, passport, or driving licence
3. Signature proof, including passport or PAN card
4. Residence proof, including Aadhaar Card, Voter ID, passport, driving licence, rent agreement, ration card, or utility bill
5. Last six months’ bank statements
6. Salaried individuals must submit their last three months’ salary slips, form 16, or ITR.
7. Self-employed individuals must submit their last two years’ ITR, balance sheet, profit & loss account, income computation, etc.
8. Business proof, including license, GST number, or registration certificate
9. Clearance Certificate or IT Assessment
10. Income tax challans, TDS certificate, or Form 26 AS

• Interest Rate

An interest rate is a crucial number that constitutes the total loan cost and monthly EMI amount. Lending institutions determine the interest rate based on their credit score, employer, age, income, repayment capacity, and other factors. Improve eligibility and credit score to get the lowest interest rates on Personal Loans.

• Additional Charges

Borrowers must be aware of additional Personal Loan charges, including processing fees, late payment penalties, prepayment fees, etc. Compare them with different lenders and opt for the most reasonable one.

You might face numerous crunch situations when a Personal Loan can help you. However, one simple tip is to read the fine print carefully and understand the terms and conditions well before applying to get the best deal.